Technology of the Week: Netflix vs iQiyi (Group 28)

Our group focuses on two online video providers, Netflix and iQiyi, which are selected as representatives of US and China online video streaming industry.

Neflix

Netflix is an American online streaming video provider, founded by Reed Hastings and Marc Randolph in 1997. The initial business model focused on providing DVDs for a fixed monthly fee, no-late-fee policy and by-mail subscription service. In 2007, Netflix added an online streaming video service, “Watch Now”, which enabled its members to watch movies using computer. In the following years, Netflix also managed to establish partnerships with several consumer electronics companies.

iQiyi

iQiyi is one of China’s leading online video providers, which was launched in 2010, invested by Baidu(the owner of China’s largest search engine). iQiyi exclusively focuses on fully licensed and high definition contents, meaning that all video contents provided by it are licensed from copyright owners. In addition, iQiyi has its own team and studios to produce differentiated programs.

Based on the analysis of Neflix and iQiyi’s products, pricing, promotion and problems, we summarized the strengths and weaknesses of these two companies as below.

Strengths

1. Neflix

(1) First-mover advantage

As a first-mover in licensed video streaming services, Netflix has an advantage that that there is high-cost barrier for new entrants.

(2) Great amount of members worldwide

Netflix has more than 50 million members in over 40 countries enjoying over two billion hours of TV shows and movies per month.

(3) Business network

Netflix cooperates with Amazon, Samsung, Apple, and Google, in cable boxes, which make way for Netflix to millions of TV screens.

(4) Best algorithm in user behavior prediction

It not only helps Netflix to recommend videos to users, but also leads to the success of House of Cards.

2. iQiyi

(1) Supports from Baidu

Baidu provides sufficient funding and positive brand impacts to iQiyi. In addition, iQiyi can purchase video contents and put advertisements using the searching data from Baidu as references.

(2) Legal copyrights

iQiyi implements its specific business model to guarantee the first-hand legal acquirement of video resources, and eliminates the scruples of breaking the laws.

(3) Innovative products and services

iQiyi has launched TV+ and Super Definition Box, which combine online video with traditional television to create new source of revenue.

Weaknesses

1. Netflix

(1) Narrow scope of business

Netflix only has two main business segments, namely, DVD rental and streaming.

(2) Reliance on licenses

Netflix has few self-made TV programs and no video uploaded by users. Therefore, they must spend a lot on getting licenses when they enter a new market.

(3) Limited number of popular movies

Because of interest contradiction, movie producers often refuse to sell licenses of popular movies to Netflix. Netflix lacks bargaining power in negotiation.

2. iQiyi

(1) Late entry to the industry

Prior to iQiyi’s entry, there has been a number of competitors in the market. How to establish differentiation advantages to gain and retain market share is serious challenge for iQiyi.

(2) Burden of high costs of legal copyrights

Though the purchase of legal copyrights is considered as strength of iQiyi, its high costs also cause the difficulty in making profits.

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